Observation Status or Inpatient Admission - Guidance for Physicians

"Observation Status or Inpatient Admission - Guidance for Physicians" has been modified so that physicians can download all, or portions, through HCE’s website.

Observation

The quality of care should be the same whether the Medicare patient is placed in observation or admitted as an inpatient. It is the difference in cost that is important to the patient.

What observation status may costs the patient

A $100 annual Part B deductible plus 20% of the Medicare-allowed amount. There is a cap on the total amount a Medicare patient will pay. The total will not exceed the amount of an inpatient deductible ($812 for 2002) for each ambulatory payment classification reimbursed by Medicare.

Medicare payment to the hospital for observation status

Observation status is covered under Medicare. In most instances, observation status payment will be bundled or “packaged” with other services (e.g., clinic, outpatient surgery, or emergency department services). Coverage for observation services is limited to no more than 48 hours, unless the Medicare fiscal intermediary approves an exception.

The quality of care should be the same whether the Medicare patient is placed in observation or admitted as an inpatient. It is the difference in cost that is important to the patient.

What an inpatient admission costs your patient

The patient will pay $812 (per benefit period) plus 20% of the Medicare-allowed amount. If hospitalized for more than 60 straight days, the amount the patient will pay increases. A benefit period begins the day the patient is admitted to the hospital (inpatient) or skilled nursing facility and ends when the patient has not received either inpatient or skilled care for 60 consecutive days.

Medicare payment to the hospital for an inpatient admission

Acute, inpatient care is reimbursed under a diagnosis-related groups (DRGs) system. DRGs are classifications of diagnoses and procedures in which patients demonstrate similar resource consumption and length-of-stay patterns. A payment rate is set for each DRG and the hospital’s Medicare reimbursement for an inpatient stay is based on that rate. Length of stay is not a factor and the hospital receives the same DRG payment whether the patient stays one day or several days.

Observation Observation status should involve specific goals and plan of care, distinct from the goals and plan of care for an emergency or clinic visit.

To determine if the patient should be admitted as an inpatient or may be safely discharged, he or she should be:

under the care of a physician during the observation status period,

actively assessed, and, if necessary,

treated.

In most instances, the hospital’s payment for observation services will be bundled with other services (e.g., emergency department or clinic). Medicare, however, will make separate payment to hospitals for the following three medical conditions.

Chest pain

Asthma

Congestive heart failure (CHF)

For these conditions, observation status may be used to provide active treatment to determine if a patient’s condition is going to require that he or she be admitted as an inpatient, or if the condition does improve so that the patient may be safely discharged. This does not mean that Medicare requires all patients with those three conditions to be placed in observation status before being admitted as an inpatient.

Inpatient The decision to order a patient’s admission requires complex medical judgment that can only be made after considering a number of factors including, but not limited to the following considerations.

Patient’s history

Current medical needs

Severity of the signs and symptoms

Medical predictability of something adverse happening

Need for diagnostic studies to assist in assessing whether the patient should be admitted

Availability of diagnostic procedures at the time and location where the patient presents

Whether an anticipated procedure is considered to be inpatient only. [Medicare’s most current inpatient only procedure listing may be obtained through Health Care Excel’s (HCE) provider hotline (800) 300-8190 or downloaded from our website at www.hce.org.]

Generally a person is considered to be in inpatient status if officially admitted as an inpatient with the expectation that he or she will remain at least overnight. The severity of the patient’s illness and the intensity of services to be provided should justify the need for an acute level of care. An inpatient admission solely because the patient has been kept in observation status over 23 hours would not be considered medically necessary.

Neither observation status nor inpatient The following would neither be classified as observation nor inpatient.

The physician best knows the patient and physician documentation is critical not only for explaining why the patient required the level of care given, but for the phyisican and the hospital to be correctly reimbursed for the care provided. For the hospital to qualify for additional Medicare reimbursement for observation of patients with chest pain, asthma, or congestive heart failure, the following physician documentation is required. Note: All of the following must be signed and have the time indicated.

Information, such as orders for treatment or progress notes, though not required for the hospital to receive the additional reimbursement, also should be documented.

Medicare has determined that there are specific services normally performed when assessing patients who have chest pain, asthma, or CHF. Before allowing additional observation reimbursement, Medicare would expect that the following services had been performed. Some of the testing may be performed as part of the emergency or clinic visit before the patient was admitted to observation status.

Observation The physician does not order an inpatient admission and continued observation isn’t medically necessary, an advanced beneficiary notice of noncoverage (ABN) may be issued by the hospital. This notice informs the Medicare beneficiary that observation is no longer medically necessary and he or she will be financially responsible if he or she chooses to stay. ABNs can be given without a physician’s order.

Inpatient When the physician has ordered an acute inpatient admission following the observation period and the hospital determines that the admission is not medically necessary, the hospital should issue the Medicare beneficiary a preadmission Hospital-Issued Notice of Noncoverage (HINN). This notice informs the patient that Medicare will not pay for a hospital admission, and he or she will be financially responsible if he or she chooses to stay. The hospital does not need physician concurrence before issuing a HINN.

When a Medicare beneficiary does not require either observation status or inpatient admission yet is unable to return home, it is important that the hospital’s case management or social service department be notified as soon as possible so they can begin to assess alternative placement options.

An acute care admission solely for skilled nursing facility placement or lack of a caregiver at home is not considered appropriate.

Health Care Excel (HCE) has developed an alternative placement process, intended to serve as a hospital’s starting point for creating a more comprehensive, customized alternative placement policy and procedure. HCE’s free “Alternative Placement Process,” which lists alternative placement options and resources, can be obtained by calling (800) 300-8190.